9 May 1997 GST/HST Interpretation HQR0000429 - Potential for Liability When Handling GST for Customers

Dear XXXXX

Thank you for your letter of July 29, 1996 and your telephone discussion concerning the handling of the Goods and Services Tax (GST) with regards to prepaid funeral services funds.

Statement of Facts

1. Individuals arrange with a funeral home to provide specific funeral services upon their death.

2. The individual pays the funeral home for the full amount of the services plus the GST. Two checks are written by the individual, one for the pre-arrangement to a trust account, and one for the GST in the name of the funeral home.

3. The amount collected by the funeral home is placed in an interest-bearing trust account with XXXXX pursuant to provincial regulations and may not be touched by the funeral home until such time as the funeral service is provided.

4[.] Funeral homes collect and remit the GST on prepaid funeral services at the time payment is made.

5. XXXXX is not acting as an agent for the trust or the funeral home.

6. Most provinces do not allow the trust portion of the payment to flow through the funeral home's general bank account.

Interpretation Requested

You are proposing to have the funeral home send XXXXX one cheque, in the name of the funeral home, which would contain an amount to be deposited into the trust fund and an amount which is the GST collectible to be deposited into the funeral home's account. You wish to know if XXXXX will be liable, for the tax collectible by the funeral home, if the GST amount which XXXXX has placed in the funeral home's account is not remitted by the funeral home.

Interpretation Given

Generally, under a prepaid contract, GST becomes payable on the earlier of the day the payments are made or become due in accordance with sections 152 and 168 of the Excise Tax Act (ETA). Provincial legislation requiring payments, under a prepaid funeral contract, to be held in a trust account, has no effect on when the supply is made, when tax becomes payable, or when tax must be remitted. GST on prepaid funeral contracts is payable on the earlier of the day the payments are made or become due.

Pursuant to subsection 225(1) of the ETA, any amount that became collectible or was collected as tax or on account of tax in a particular reporting period is used to determine the net tax of the person for that particular reporting period. In other words, tax collected on prepaid funeral contracts must be used to determine the net tax for the period in which it was collected unless the amount became collectible in an earlier reporting period.

In this instance, the financial institution has not collected funds as or on account of tax. The financial institution is only acting as a conduit for the funeral home and not actually collecting the tax (or an amount on account of tax). The bank is basically breaking up the funds, one portion going into the trust and the other going back to the funeral home, which is the tax component. Therefore, it is the Department's position that XXXXX would not be liable for the funds that are deposited into to the funeral home's account even if the funeral home does not then remit them to the Receiver General.

The foregoing comments represent our general views with respect to the subject matter of your letter. Proposed or future amendments to the legislation may result in changes to our interpretation. These comments are not rulings and, in accordance with the guidelines set out in GST Memoranda Series (1.4), do not bind the Department with respect to a particular situation.

Should you have any questions in this regard, please call me at (613) 957-8223.

Yours truly,

Christopher White
Rulings Officer
General Operations Unit
General Operations and Border Issues Division
GST Rulings & Interpretations Directorate

b.c.c.:   NCS Subject Code(s) - I 11630-9

b.c.c.:   District Chief, Audit

b.c.c.:   hard copy - R/F GST - XXXXX